The decision by the US central bankers was as expected by the markets. Yesterday evening, the Fed announced that the key interest rate would be cut by 25 basis points. After a short-term rise above the $3,700 per ounce mark, the yellow metal, however, initially moved downwards again following the concluding comments from Fed Chair Jerome Powell.
This seems logical, as the gold price had largely anticipated this decision with its strong rise in recent weeks. Analysts had already expected a similar reaction beforehand – as we reported. However, it was also emphasized that such a pullback should only be short-lived.
Gold Continues to Have Medium and Long-term Upside Potential
This seems likely, as the Federal Reserve, in its latest forecasts, indicates that a rate cut is also to be expected at each of the last two Open Market Committee meetings scheduled for this year. This suggests a continuation of the now looser monetary policy.
In any case, the new guideline for future monetary policy significantly impacts the prospects for the gold price. Past experience shows that precious metals often gain during extended periods of loose monetary policy: Falling interest rates reduce the opportunity cost of holding non-yielding assets and at the same time foster inflationary pressure – both increase gold’s attractiveness as a store of value.
Analysts also point out that despite yesterday’s pullback, the fundamental factors supporting the gold price remain intact. Furthermore, according to experts, technical chart models also indicate that the precious metal still has significant upside potential. Some even suggest that gold could rise to nearly $3,900 by year-end if the Fed indeed cuts the key interest rate twice more in 2025.
A presumably looser monetary policy again, persistent inflationary pressure, and ongoing global uncertainties and conflicts thus continue to create a favorable environment for further gold price increases. In the short term, increased volatility is likely to be observed until markets have digested new economic data and (monetary) policy developments, but long-term, the outlook for gold in the current environment remains positive.
Still Positive Environment for Gold Companies Too
Gold companies – from producers to developers to gold exploration companies – are also likely to benefit from this particularly medium and long-term positive environment. On Goldinvest.de, we have been observing for quite some time that explorers are now also starting to rise across the board.
For example, Colombia-active Quimbaya Gold (WKN A3DT3C / CSE QIM) achieved a strong performance of >124% year-to-date and is also expected to present initial drilling results shortly. Yukon gold explorer Sitka Gold (WKN A2JG70 / TSXV SIG) also shows strong performance with a gain of around 104% since the beginning of the year, while Goliath Resources (WKN A2P063 / TSXV GOT) even recorded an increase of around 179%. In our opinion, what all these companies have in common is that the ceiling has probably not yet been reached. For Sitka, the majority of the results from a 30,000-meter drilling program are still pending, while Goliath has only reported a small portion of the results from its 60,000-meter drilling campaign.
Juggernaut Exploration (WKN A2PTXU / TSXV JUGR) – considered by some as Goliath 2.0 – and Formation Metals (WKN A3D492 / CSE FOMO) have not even started drilling yet. Yet, these companies are already up around 37% and 50% respectively year-to-date. Once their drilling programs commence, things will get even more exciting.
A special case that we must not forget is Nicola Mining (WKN A3D3LF / TSXV NIM). The company, which also has exciting copper and silver exploration projects, has demonstrated excellent timing and, in the midst of the current gold boom, has commenced processing gold ore at its facility in Merritt, British Columbia. Investors have rewarded this with a gain of 262% year-to-date!
